Britain to clamp down on corporate tax avoidance as lawmakers focus on Starbucks, Amazon

Originally published December 4, 2012 at 12:00 am

Updated December 4, 2012 at 5:57 am

Pedestrians walk past a branch of the Starbucks cafe chain in west London, Monday.

The British government said Monday it would spend more money catching tax avoiders, after a lawmakers' committee accused major multinational companies including Starbucks, Google and Amazon of "immorally" dodging tax.

The British government said Monday it would spend more money catching tax avoiders, after a lawmakers’ committee accused major multinational companies including Starbucks, Google and Amazon of “immorally” dodging tax.

The companies insisted they operated within the law, although Starbucks announced it is reviewing its British tax practices in a bid to restore public trust.

Treasury chief George Osborne said the government was earmarking an extra 77 million pounds ($124 million) and hiring 100 new tax investigators to clamp down on “offshore evasion and avoidance by wealthy individuals and by multinationals.” He said the investment would bring in an extra 2 billion pounds a year.

His announcement came after Parliament’s public accounts committee said the government should “get a grip” on multinationals that exploit tax laws to move profits generated in Britain to offshore domains.

“Global companies with huge operations in the U.K., generating significant amounts of income, are getting away with paying little or no corporation tax here,” said Labour legislator Margaret Hodge, who chairs the all-party committee. “This is outrageous and an insult to British businesses and individuals who pay their fair share.”

As the British economy splutters amid Europe’s economic crisis, and the government slashes spending in a bid to curb the deficit, public anger has grown against companies that pay little tax while making large profits.

Companies operating in Europe can base themselves in any of the 27 European Union nations, allowing them to take advantage of a particular country’s low tax rates.

Google has picked Ireland and Bermuda as its main bases, while coffee chain Starbucks has its European base in The Netherlands and pays British tax only after transferring large sums in royalties to its Dutch headquarters.

The committee said online retailer Amazon paid 1.8 million pounds ($2.9 million) in British tax in 2011 on turnover of 207 million pounds.

Hodge said executives from the three companies had been “unconvincing and, in some cases, evasive” when they appeared before the committee last month to explain their tax regimes. And she accused Britain’s tax agency of being “way too lenient” in dealing with multinationals.

“All three companies accepted that profits should be taxed in the countries where the economic activity that drives those profits takes place,” the lawmakers’ report said.

“However, we were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimize their tax obligations, are defensible.”

Amazon said in a statement that it “pays all applicable taxes in every jurisdiction that it operates within.”

“Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages dispatching products to all 27 countries in the EU,” it said. “We have a single European Headquarters in Luxembourg with hundreds of employees to manage this complex operation.”

Google declined to comment Monday, but its British chief, Matt Brittin, said last week that the company “plays by the rules set by politicians.”

“The only people who really have choices are politicians who set the tax rates,” he told Channel 4 News.

Starbucks, whose outlets have been targeted by the protest group U.K. Uncut, said in a statement that it had “listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more.”

“As part of this we are looking at our tax approach in the U.K.,” said the coffee firm, which has more than 700 outlets in Britain. “The company has been in discussions with (Her Majesty’s Revenue and Customs) for some time and is also in talks with the Treasury.”

Britain, France and Germany have called for the world’s largest economies to do more to collaborate to fight tax evasion, particularly in online commerce.

Osborne said Monday that Britain and the U.S. had signed an agreement on sharing tax information that would help Britain tackle offshore evasion.

He has also said he will make tax issues a priority when Britain takes its turn as leader of the G-7 and G-8 groups of nations next year.